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The Future of Gaming DAO or FOGDAO is a decentralized, tokenized community exploring the future of the gaming industry.
Nico Vereecke:
GM friends and welcome to the future of gaming. You're listening to our weekly forecast. We have the usual hosts, Nico Verreke and myself and Phil Collins, who's back finally. And now we have a very special guest, Joachim Akrem. I don't know if I said that right, who is an investor
Joakim:
It's
Nico Vereecke:
at
Joakim:
good.
Nico Vereecke:
Elite Game Developers. Was that good?
Joakim:
Yeah,
Nico Vereecke:
My
Joakim:
it
Nico Vereecke:
Finnish
Joakim:
was
Nico Vereecke:
name is...
Joakim:
really good. Yeah, but you're not so you can do it.
Nico Vereecke:
Yeah,
Philip Collins:
I'm gonna
Nico Vereecke:
that's
Philip Collins:
go to
Nico Vereecke:
true.
Philip Collins:
bed.
Nico Vereecke:
That's unfair. Good. So as usual, I try to predict what we're going to be talking about and we usually go way off course. The goal is to quickly do an update about some big news that happened, which is about the case between Apple and Epic. And we're also briefly going to discuss the Microsoft Activision acquisition and what the UK wants to... to say about that and then we'll dig into a bit of early stage game studio investing because that's what Joachim is like specializing I would say and great at and he has some fantastic opinions and insights and advice that he gives so that's the plan. So Phil you have been from the three of us following the news probably the most so maybe let's start with Epic the Apple what's important to take away from that one.
Philip Collins:
Yeah, sure. So it's been a busy 48 hours in the regulatory space for gaming, which is not the most fun topic, but important nonetheless. So on the Apple Epic side, that process has been going through appeals courts here in the U.S. So just as a reminder, back in 2020, this all kicked off when Epic decided to put in alternate payment methods into Fortnite directly on the App Store, which, of course, directly breached Apple's terms of service and which is... was not surprising to Epic. That was somewhat intentional to kind of spark this battle over what is or isn't fair or monopolistic on app stores. And since then, they've been going back and forth on app store practices and what should or shouldn't be allowed for groups like Apple and Google. And after kind of like a ping pong session over three years, the latest decision that was released this week was heavily in favor of Apple, actually, despite Epic's best efforts to kind of play White Knight for the gaming industry and be the voice of the developer. So what basically happened is nine out of the 10 counts that the US appeals courts were looking at were voted in favor of Apple not being monopolistic in their current practices. The one exception that was a slight win for Epic was the anti-steering practices, which is effectively Apple's ability to prohibit developers from linking out to external payment methods within the app has kind of been overrun. So that seems like a small win for developers, where there can be a little bit more of a direct touchpoint in monetization by enabling buttons in-app to link you out to your web browser and have direct payment alternatives. So overall, I'd say pretty disappointing for Epic. Apple, I think, is going to continue pushing on this anti-steering. clause because it is important to their continued ownership of the wallet of the end user. But that's kind of the high level update from that side.
Nico Vereecke:
And so this anti-steering rule means that potentially game developers could offer like 10% off on IAPs. If users click a link, go to a website and do the payment there, that would mean that they get 90% instead of the traditional 70% of the payment.
Philip Collins:
Right. I think the big loss on the other hand is this idea around third party marketplaces being enabled on Apple devices seems to be a little bit less clear. I think there's been a lot of
Joakim:
Hmm.
Philip Collins:
movement in Europe around potentially preparing for the introduction of alternative marketplaces to the App Store on Apple devices. It seems like the latest ruling is not in favor of that, at least here in the US. So I think that's still kind of up in the air. But yeah, the anti-steering that you mentioned, Nico, is... It's probably the one favorable outcome for the time being for developers on the App Store.
Nico Vereecke:
You're welcome.
Joakim:
Yeah,
Nico Vereecke:
Thoughts?
Joakim:
I'm also waiting for seeing like, what is sort of like the true, like utilization of these changes that are going to happen right now. I think all the movement towards like more open app stores and mobile ecosystems, I don't see it going away. Like there's momentum here. And like, even though there's, there are these kind of rulings in place, like the, it's just the US, but the pressure coming from outside of US is still like pretty, pretty amazing. I think it's also a bit about like how Europe treats kind of like these monopolistic like organizations is gonna, it's gonna be a hell for Apple.
Nico Vereecke:
Awesome, good. Now next up we have Activation Blizzard and Microsoft. What can you tell
Philip Collins:
Yeah.
Nico Vereecke:
us about that Phil?
Philip Collins:
Yeah, I mean, going back to the regional point that Joachim just brought up, the CMA, which is Britain's regulatory body, decided to block the Microsoft Activision deal following the FTC's decision several months back. I think what's interesting here is the rationale that they're using. So, I'll read directly from the gov.uk press release of this. They said, Microsoft already accounts for an estimated 60 to 70% of global cloud gaming services and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system, which is Windows, and a global cloud computing infrastructure across Azure and Xbox cloud gaming. The deal would reinforce Microsoft's advantage in the market by giving it control over important gaming content like Call of Duty, Overwatch, World of Warcraft. And the evidence available to CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future. The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choices to how they play, allowing Microsoft to take such a strong position in the cloud gaming market, just as it begins to grow rapidly, would risk undermining the innovation that is crucial to the development of these opportunities. So, I think there's a lot of reasons to be skeptical about. the Microsoft Activision deal in terms of the health of the gaming industry, whether that be, you know, monopolistic control over content and distribution, you know, potentially rising prices for end users over time. But I think the argument that they're using here seems very strange across protecting the nascent cloud gaming industry. In a lot of ways, like we've already seen that in their, in their assessment, Microsoft owns 60 to 70% of global cloud gaming. And to be honest, I struggle to see groups. as well positioned to facilitate the adoption of cloud gaming as someone like Microsoft. They do own the underlying infrastructure. By owning the underlying infrastructure, they're actually able to provide a better deal to end users because this can be a loss leader for them. I think that we've seen a lot of startups try to innovate in this space and the business models that are required to make this make sense for a startup are always, I think, uncompelling to the end user where you're paying per minute or per hour. It almost seems like an outdated 1970s arcade model of playing games, which is kind of the opposite of the direction we've been trending for the last decades. And so again, like not necessarily vouching for the deal. I'm still optimistic that it will actually end up getting through despite being bearish on what it could mean for gaming and game developers. But the defense of the CMA almost makes me think like they're misunderstanding what cloud gaming actually is and what the prospects of growth look like there because... I hate to say it, but this is one of the very few areas in gaming where I look at a space and I think this is kind of going to be dominated by the big players. And I think the small fish in the sea are going to really struggle to keep up. And normally that's something that I try to avoid as much as possible because I think it's a flawed way of thinking. But just in terms of the operational costs and the infrastructure required to do this well, the
Joakim:
Hmm.
Philip Collins:
fact that these big players already own the underlying infrastructure and can again be loss leaders, I think is... is a really compelling entry point. And it almost feels like the regulatory bodies are preventing the most well-suited candidate from creating a market, from creating a market and handicapping that effort. So I thought the rationale was particularly interesting there.
Joakim:
Hmm.
Nico Vereecke:
Could it be that the regulators in the UK looked at this and said there's like 10 reasons why we should want this? And the NACEID cloud industry was the best case they could make, although the end effect of that would have been smaller, but more from a legal perspective, it gave them a stronger case?
Philip Collins:
you Maybe, and I mean, I think that's partially why the US has honed in on that too, is vertical integration and owning multiple different steps of the game development and distribution process and owning the end hardware. Vertical integration in the US has basically been given a regulatory pass for the last several decades. It's more been on the horizontal side, or really trying to own Activision buying Riot and Ubisoft and EA. That would raise more alarm bells historically for US regulators. this cloud aspect of owning distribution is really like the most compelling legal argument that could align with precedent in an interesting way but I'm sure there's you know there's more to it than just this cloud argument it just seems like that is the one that they're choosing to plant their flag into
Joakim:
Hmm.
Nico Vereecke:
Jochem, any thoughts?
Joakim:
No, not really. I think this is a lot of people not understanding like what's the right way to open up an ecosystem that's healthy for great games to come up. I think that's what we all want. It's kind of hard to make sure that that happens in these kind of situations.
Nico Vereecke:
Mm-hmm. Agreed. Good. All right. Because I, you know, I do a lot of podcasts and you think I know how to organize those, but we should probably have started your game with a bit more about your background before we dug into, you know, meat and topics. So why don't we just go back and I'd love to, you know, get your story a bit. You know, what's your career been like in the games industry and what are you doing today and how did you end up there?
Joakim:
Yeah, so like 20 years close to spending time in the games industry, two venture backed companies that I founded. I was at Supercell in between those companies for a bit. Now four years of being an angel investor. I was at Play Ventures as a VC for two years. And now I'm full time focused on my a company called Elite Game Developers, which creates content for entrepreneurs in gaming, people who want to start companies and to help them sort of not make all the same mistakes I made. That's already like one of the main missions here. So I write a newsletter on on entrepreneurship in gaming, you can subscribe on the elitegamedevelopers.com website. And there's a podcast as well that I do where I talk with founders and talk about these topics as well. And investing, yeah. So I'm now, I think, 35 different companies where I'm an angel investor in. So it's a... It's a nice, nice group and there's a lot of Intel already from just interacting with those companies. So I was just thinking about like how much like to found it two companies, but I've learned so much from interacting with a portfolio of, of gaming founders. And learning from their like behaviors, interactions, their decision-making, like where it goes. personality fit for entrepreneurship, everything. So interesting and fascinating.
Nico Vereecke:
Super excited to dig into that. And by the way, listener, if you are listening to this, interested in what we are talking about here, you should probably subscribe to Joakim's newsletter, because it's this stuff, but probably better. I'm gonna be honest. Also, I saw 8,000 subscribers now.
Joakim:
Yeah,
Nico Vereecke:
Wow.
Joakim:
yeah, it's growing pretty substantially every day. So
Nico Vereecke:
Amazing, amazing. Good, I'd like to kick this off. You said, you know, two companies that you built, you have learnings. Give us one or two anecdotes about learnings that you made because of mistakes that you made and whatever you can share about those.
Joakim:
Yeah, I want to highlight the number one thing that I really often think about this. So I had two games companies making games, but I never really spent enough time thinking about why a certain game works and why another game doesn't. Like I was just fascinated about building games and the fascination manifested in just, you know, quickly starting to work on a game based on. like very superficial understanding of what are good game mechanics, why they work, what not. So, I think it took me at least 10 years to really appreciate game user research, different understanding player motivations, user experience, design, everything. What drives people to to play these games. There's a lot of stuff out there and like the great game designers like have poured stuff into GDC vault like immensely about that stuff. So it was very superficial for me for the first 10 years of my career. But then I started more gravitating towards understanding, hey, why did this game work? Why is this game dead? Why did it die in soft launch versus the others? So that's one of the big learnings, to spend more time figuring out the motivations of your player and understanding the audience before you start coding. I think,
Nico Vereecke:
And that helps
Joakim:
yeah.
Nico Vereecke:
you for as much as it's possible be able to assess games and games dynamics before you actually, you know, already spend the time into building them.
Joakim:
Exactly. Can you do it? Do you understand why a certain like, let's say there's a game out there and then somebody attempts to do a clone out of that game or sort of like a fast follow or something. What are the reasons that some fast follows work and some don't? It's very fascinating. So those kind of like just... going down those rabbit holes really like enhances your understanding of, hey, how, how should I approach making a game if I have a great idea?
Nico Vereecke:
You can give some examples, specifically about those fast follows, why some work and why some don't.
Joakim:
Yeah, I think it's about the audience, like specifically investment of time and I want to beat this game, sort of like motivations and social ties that like if a game is retaining players quite well, it usually means that they don't, there's not a lot of competition out there. But then you look at some of the match tree games, which there's a broader appeal for several games to be played by a single player versus like a strategy game, like how many Clash of Clans could one person be playing versus like how many Candy Crushes. So that's an example where you could like spend time on and understanding what's going on there. How is the audience different? I think a lot of that goes into the audience understanding, spending time with the audience. talking to them and stuff like that.
Nico Vereecke:
How does that compare slash contrast with the more data driven approach where you Because you're saying that through your research, you kind of have a better understanding about what games work and what strategies around games work. One of the things I think made Free to Play so successful was the super fast iteration cycle where companies were less dependent on the anti-assessment of market product market fits and audience fits and more about rapid iteration, rapid prototyping, getting it out there in soft launch and looking at the data. and to iterate on that.
Joakim:
Yeah, like a few things there. So mobile free to play. I think it was so much about timing in the market where, um, first you had an entire ecosystem of for grabs where King super cell, many others, uh, great execution skills just appeared at the right time, like right place at the right time, uh, with those execution skills to take over, um, then Fast forward a bit, like five years, you got like Apple in people like taking real advantage, like really like using their data driven sort of like understanding and and just crushing it. And then like Apple changes privacy policies and the golden age is done. And then then we're we're into a new realm where you really need to think outside of the box and you. We're just waiting to see what is the big thing in mobile. I think mobile isn't dead, but the ways of working just mean that, okay, those phases of the industry have ended and we're not moving into maybe even more audience-driven, sort of like capturing markets. I think about Survivor.io and how happy what they're doing. All of those are really like, they understand the audience so well. versus like just crushing it with machine learning, UA like stuff.
Nico Vereecke:
Is it correct of me to assess that the majority of your investments are mobile-based and mobile-focused?
Joakim:
It is mostly, but I definitely do have more like a founder focus. So it's rather like if there's gaming founders who are building something where I feel that, okay, this makes sense for venture, for venture capital, then it doesn't really matter if it's mobile. But I feel that like mobile has so much still to give. and people want new experiences on mobile and it's the biggest platform. So like I'm not going to skew away from mobile.
Philip Collins:
And what are some of the signs that a studio or a piece of content is ready for venture? Because I think that's an interesting delineation that's evolved over the last five, ten years.
Joakim:
Yeah, like for me, like when I was starting elite game developers, I was thinking like, how do I scale this? And I felt that a newsletter, it's gonna sort of like infinitely scale as long as I'm providing value. So there's no ceiling to it. I always approach everything by like, how do I scale this as big as possible? So I... Like with my first startup, I was creating, like we were creating a virtual world and we started making a Finnish language first version first so we could talk with our audience. But I was like, we were planning already immediately that we need to do an English version as well, but it was super distracting because we, a big failure was to actually like start hosting two different products, running two different communities and other sort of like international and then keeping a local so that we could have taps on. on the audience and it was like, it was tricky. But what was the question again, Phil? Why were we not attached here?
Philip Collins:
No, it's fun. It was really just around, you know, what are some of the signs that a piece of content platform agnostic
Joakim:
Mmm.
Philip Collins:
is kind of ready for venture or makes sense from a venture
Joakim:
Yep.
Philip Collins:
return profile?
Joakim:
Yeah. Maybe that like the Finnish angle is like, there's only 5 million Finnish speaking people and you can only like tap into like a small percentage on an online service. Um, like that's one dilemma that I often see that people are just like, the market is too narrow. There's like a hard cap coming up. Um, or that they don't really treat the company in a way that this could actually turn into something that. makes in like a million a day. Like is there a limitation here? So there's one startup that I'm talking to constantly who is doing something very amazing in Minecraft. But they're so adamant in staying small in so many ways. And I can see that this would blow up if they just want to. So it's it's also a part of like the founders willingness to push it towards something that could scale to billions.
Nico Vereecke:
And one piece of context I want to give with that is that, you know, because us as investors, sometimes like there's not a fit with our strategies and we are trained to look for outsized returns. A venture fund is probably made by one Uber, one Facebook, you know, one of these enormous companies, one Ride Games,
Joakim:
Hmm.
Nico Vereecke:
more specific for the games industry. And so. The fact that we decide that a company is not a fit for the fund does not mean that that company can't succeed. As you
Philip Collins:
Mm-hmm.
Nico Vereecke:
said Joachim, these founders decide that they want to stay small and they want to do things their way. And to be honest, from an individual perspective as a founder... I can totally see why you would want, if you have a working game and you're making a good living and you're enjoying your life, you don't want a VC investor on board telling you what to do, telling you to keep growing, keep growing, because that's what we're trained to push for.
Philip Collins:
That's a really interesting point. And I think something that often gets lost is there are times where we pass on companies and we have a very clear path where we're like, this founder might make 25, 50 million dollars personally. And so us passing oftentimes is not us saying that we think that the company is going to be a failure. It's not our prediction is this will be a zero. It's our prediction is this won't meet our fund returning profile where
Joakim:
Mm-hmm.
Philip Collins:
you are like power law driven. And so I do think that's something that I always point out to some founders where like we do believe in them building something, it's just not for us, is like we see a successful path here and that's not just us saying that to make everyone feel good. You can build a successful business and VC does not have to be your path
Joakim:
Hmm.
Philip Collins:
to run something that's meaningful and to honestly make a lot of money for yourself as a founder.
Joakim:
Sometimes some founders feel that VC is their path, but they don't still understand why it doesn't sound like it is from what they're saying and talking and going through. So I do love spend time people to educate people on like, hey, this is where you're going wrong here, or you're thinking about scaling in a wrong way, maybe the team, like this composition that you have for a team right now. there's something missing here, like for you to actually enable VC funding in the next 12 months or so. So it's fun to kind of like see if people actually, when I push them a bit, like do they start moving into that direction or are they stuck? So, yeah.
Philip Collins:
And it might be particularly helpful, Joachim, from your perspective, because you've kind of worn both hats, right? I mean, you've been at Play and you've also angel invested. In terms of expected returns there, as an angel, you know, are you underwriting at more of a 10x than a power law fund returner? How do you think about that as somebody that's done both sides?
Joakim:
I, so the thing is I'm very obsessed with founders going into, into a mode of actually like raising, but then planning to raise again, to grow and grow. I like, I do want to see bigger companies getting formed out of the ones where I sort of get involved. Um, so I'm, I'm like to avoid those. I'm, I'm actually writing a piece about secondary like rounds where. the founders can take some of the stress off by selling a part of their company to get some cash and then take the risk to actually grow yet again. Like I know that as an angel, like 10X is great, but like I'd rather want to see at least a few companies attempt the 100X. So like if there's a really good sort of package, the founders are great, the business is great, the market is great. Like I'll definitely. push for them to go for the 100 versus the 10.
Nico Vereecke:
Just to give a bit of context, because I think it's a really interesting point. In subsequent funding rounds, there's sometimes the opportunity to sell secondaries. And so in that case,
Joakim:
Yep.
Nico Vereecke:
the founders that usually still have a pretty big chunk of the business, let's say that an individual founder still has 25%, they have the opportunity to sell like maybe 2 to 3% of their shares for maybe, in a good case, 500k or something like that. That can give rest peace of mind and allow them to take slightly bigger risks where they're putting the company at a larger risk. They may be hiring more people, which means that they're dependent on that next round and if that doesn't materialize and they're in trouble. But once they have that peace of mind, then it gives them the opportunity to go for that. That's what you're describing.
Joakim:
Yeah, exactly, exactly. So it's the peace of mind and to see something become huge.
Nico Vereecke:
Mm-hmm. Fascinating. You mentioned, so as far as I understand from what you said now, there are the two things that you were mainly looking for are, I would say, founder fits and then the market essentially, and the market potential and the outsized return potential of the product that you're building. Are those like for you the two main ones and if they are could you dig a bit deeper into your first I guess most important factor which is the founders and what you're looking for there?
Joakim:
Hmm. Yeah. So like I was having lunch last week with the founder and, uh, this is a person who was thinking about doing their second games company. Uh, they have like an idea that they're, they're going after. Um, so I had two comments for them. Like first. Why are you coming up with a new idea? Why don't you just do your previous company, but better? Um, like it felt like, uh, he's like going into, into a realm where he doesn't understand what he's up against. Like new problems. Like why not go after the old problems? That's, it's a lot better. And what he used to be doing, uh, he sold the company kind of very early. Uh, and he could do a lot of damage in that. like segment. So the second advice I told him that, hey, you're kind of like the person who's going to raise or try to attempt to raise like a million from people, maybe an angel or a pre-seed. But I told him, hey, why don't you find a co-founder who would say, no, we need to raise 10 million. Sort of like, if you find that person into your team, it's kind of like a 10X moment immediately, a huge leverage. to have somebody who's gonna support you as a co-founder, but still think like even bigger than what you're thinking right now. So let's see if he follows my advice. But yeah, those kinds of things, like I do really like to push founders in the early stages as much as possible to think big and to find co-founders that are even like better at. at doing things or complimentary or whatever, because this was like a product founder and he's great, but like he might need that 10X like or the 10 million razor founder. So just
Nico Vereecke:
Mm-hmm.
Joakim:
an example.
Nico Vereecke:
Mm-hmm. So that is something we look for as well. It is founder market fits. And I think specifically, you know, in the games industry, I guess, you know, building games, it's hard to find people that have like the true, true deep passion for like a certain type or genre of games, right? But you know, one question we like to ask ourselves is why are you the one doing this? And why are you the person to be betting on? Or why are you guys the team in most cases to be betting on this?
Joakim:
Mm. Yeah.
Nico Vereecke:
And yeah, so it's I think that's you know, it's absolutely critical.
Joakim:
Yeah, yeah. Yeah, like the, there's an element to what I want to do is to help founders meet other founders as well. Because like I spent so much time putting together the next games team and it actually worked out really well versus like you're rushing into it. You just grab the first person, you sort of like feel could be good. So yeah, there's a lot of value in just building a team.
Philip Collins:
And how do you try to hedge that as a first time founder? Because I know you've now done it multiple times, but for everyone
Joakim:
Yep.
Philip Collins:
there is a first. So proving out the founder market fit when you might not have that
Joakim:
Hmm.
Philip Collins:
first potential failure under your belt that you can learn from.
Joakim:
Yeah, it's really hard to navigate like going down the road of having a team that isn't really optimal. So everybody kind of goes into that realm with their first company. So that's what I tried to do with elite game developers is like help people who are going for it for the first time to share all these things that they should be doing. I think the best way is to start early, start with whatever you can de-risk early on. Maybe not race for your first games company. Try to bootstrap it as a side business or something, whatever, and learn as much as possible through experience. And then I think that's an interesting... There's of course these accelerators and incubators around the world where you can meet co-founders. I think that's sort of like an underappreciated thing that even for game founders it makes sense to try that out, to get support and network with people.
Nico Vereecke:
You mentioned a bit earlier that you think there's still a big opportunity in the mobile space. You also mentioned that you're specifically looking for founders or startups that are targeting something with outsized return potential. What are some of the opportunities more broadly you're seeing within the gaming space? What kind of pitches, direction will get you excited? What kind of spaces are you particularly interested in right now?
Joakim:
Everything that utilizes the kind of the new frontier where, you know, you're not relied on anything that happened pre IDFA. Let's put it this way. I'm not like crazy about AI yet because like I haven't really seen it materialized as revenue anywhere in gaming. It's sort of like the same with WebTree was extremely difficult when everything came crashing down. So, like, I think we need to still explore new things that I'm really passionate about founders who are trying to push and try to attempt new things, especially on the marketing and distribution side of the industry. I think those are the signals that when I hear that somebody's thinking really outside of the box about like how they're going to find players for their game, how they're going to retain their players. Like those are really amazing teams who spend time obsessing over distribution and marketing. Um, so yeah, that's kind of where I'm looking at.
Nico Vereecke:
It's really interesting. We tend also to look specifically within Web3 for distribution edge. You know, ADT hasn't made acquiring users easier. And I would say that in Web3 it's still a hundred times as hard. And so we always look for... a good answer to the question, like, what gives you distribution edge? How are you putting your game into players' hands? Um, and not a lot of teams have a good answer for that. No, I can tell you that already. Um, and I guess more specifically about what for you it's all of this, like, it feels like we're all waiting for, you know, the whole onboarding to get easier. So, you know, that, that whole thing becomes easier. Uh, it's just, um, yeah,
Joakim:
Hmm
Nico Vereecke:
it's fascinating, fascinating space right now. And, um, it's an interesting scenario that a lot of startups find themselves in. Um, could you give... some examples about, and this doesn't have to be what three related, the distribution thinking that you like and some perhaps recent investments you've made?
Joakim:
in the WebTree space, it's been
Nico Vereecke:
Not
Joakim:
quiet.
Nico Vereecke:
necessarily, also feel free but it doesn't
Joakim:
Yeah.
Nico Vereecke:
have to be.
Joakim:
Yeah. Yeah. It's like, I think like a couple of ones, it's very founder driven to be honest, like what I've been investing in, where it's all over the place, mobile mostly still. There's a couple of PC startups as well. who are tackling like free to play PC with like really good teams where I've gotten involved. And they're all unannounced deals. So like, I can't really specifically talk specific companies or games, but yeah, it's a, I haven't yet seen the valuations come down really rushing in the deals that have come like have materialized. So that's an interesting thing. I think The people are asking less now. We've gone from four million to now people are asking for two million. But
Nico Vereecke:
valuation for
Joakim:
like,
Nico Vereecke:
pre-seed.
Joakim:
I don't, yes. So like the ask amount is gone down. I haven't seen like what the, like an average like round, pre-seed round valuation gaming, how has that changed actually this year? Has it become something much lower than 12 months ago? Nico, you probably have more data than I do.
Nico Vereecke:
We tend to generally look at seats, seat stage more than pre-seat stage. But
Joakim:
Hmm.
Nico Vereecke:
I'm assuming that all of those are in line and I would say that, I mean, it's really because in some cases like seats have like gone down by a factor of like by a factor of four almost
Joakim:
Yeah.
Nico Vereecke:
from like, you know, 60 to 50. But obviously like there was a bubble, right? So it's hard to take those data as, you know, something to compare the current pricing by. You know, I've come up as an investor in this time. And so for me now it's like the cheapest I've ever seen. And so it's always fascinating
Joakim:
Yes.
Nico Vereecke:
to talk to people that have been in this space for longer and are like still talking about like, you know, we put
Joakim:
Yeah.
Nico Vereecke:
in like 500K, we got 25% of the business and I'm like, oh, that sounds beautiful.
Joakim:
Yeah, I think one of the interesting metrics is burned rate. So I don't know if you guys have been looking at it, but like a much lower burned rate than it used to be is something that I'm really asking for more than how much do you wanna raise? I'm like, okay, if you raise now a pre-seed, what does the burn look like in three months? So.
Philip Collins:
which in reality is actually what drives the valuations. I mean, at Seed, the valuation is a function of the amount of capital you think you need and the dilution you're willing to take. Most of the Seed businesses that are raising at 10 million post, they're not necessarily worth $10 million, but if you say you need $2 million and you're willing to take 20% dilution, then you're a $10 million company all of a sudden. So I think the burn rate's really important where. The only way valuations will continue to come down is if seed rounds kind of get smaller, where instead of it being three to five like in the past, we start seeing more one and a half to three. That's where we start to see it kind of chip back towards like the seven and a half to 12 and a half classic seed. But like the burn
Joakim:
Mm.
Philip Collins:
rate and the amount of capital you think you need is really like what's driving this perception around valuations.
Joakim:
Yeah. Like, what do you think, Phil, like U.S., like, can the startups actually, like, decrease the burn? Because it was super high for U.S. teams. Like, is there, like, leeway? I think in Europe, people had the premium, like,
Philip Collins:
Yeah.
Joakim:
like, burned red for a long time.
Philip Collins:
Yeah, I mean, I feel like we've seen a lot of seed rounds kind of stick for now around like the two and a half to three million dollar raise or two to three million dollar
Joakim:
Hmm.
Philip Collins:
raise is pretty pretty standard at the moment.
Joakim:
Mmm.
Philip Collins:
Agree that I think people are trying to find creative ways to to maybe run leaner at the beginning to get to that initial traction and then maybe raise
Joakim:
Yeah.
Philip Collins:
a seed extension or even pursue an A if they if they go fast enough.
Joakim:
Yep.
Philip Collins:
But I think we'll also start to see more seed extensions because people may start to try to raise a little bit more conservative or maybe a little bit more aggressive, actually, seed rounds where they take on less capital, they run with a team of three until they start to find some traction, then go out and
Joakim:
Hmm
Philip Collins:
do that three to five million dollar raise and hope that takes them to like a seven and a half to $10 million Series A. I think we've seen people attempt to do it. Time will tell if people are able to do that well. I think that's why. That's part of why we're seeing so much attention around AI in terms of enhancing efficiency. I think that's interesting. We're still kind of in the Yoakim camp of cautiously optimistic about AI, where we see the value it delivers in terms of efficiency, but we're not seeing a ton of. actual standalone products and services that we get excited about as investable early stage opportunities. But I think people are trying to just make their workflows more efficient where instead of five people, maybe you do need four. And that's a huge win for a seed stage company.
Joakim:
Yeah, I think the interesting thing here is like you have a stellar team and they have AI in their deck. It's sort of like it puts me a bit off
Philip Collins:
Yeah.
Joakim:
because I know that that AI appeared there like in the last few months
Philip Collins:
Well, and that's why...
Joakim:
and it's sort of, yeah.
Philip Collins:
No, go ahead.
Joakim:
Now it's, it's, I've just saw this headline a while ago in Finnish, like startup AI
Philip Collins:
Yeah,
Joakim:
thing.
Philip Collins:
and that's why I think it's often interesting when we see companies not position themselves as AI companies, we see them positioning themselves as companies solving X problem and potentially using AI to make it more efficient either from the team side or from the end service or product side. Because I think a lot of the companies that are currently trying to position themselves as AI companies to get the VC dollars are actually solving an entirely different problem and using it in a potentially creative way, but I think there
Joakim:
Yes.
Philip Collins:
actually is difference between being an AI company and being a company that happens to be leveraging AI. And the latter actually gets us more exciting where you're using it to more efficiently solve an interesting problem.
Joakim:
Mm-hmm. Yeah, yeah, totally.
Nico Vereecke:
To briefly touch back upon the raise amount, I guess, you know, Phil, you mentioned like how much money do you need? It's all a function of runway and how much time you need, like how much money you need to cover how much, um, how many months essentially. Joachim, is there a sort of sweet spots in your opinion when it comes to amount of runway for a pre-seed raise? So how many months does a pre-seed need to fund a company? Um, you know, do you, is, is that a fixed number for you? Is that dependent on what they're building? If they can iterate fast and it's more a function of shots on goal, like prototypes they can get out. Um, how are you thinking about these things? Thanks for watching!
Joakim:
I really love to see 24 months runaway nowadays, to be honest. Like it's, it's a bit like, it's so hard to show enough traction or show progress in less than two years, like to, to guarantee it's, it's a big risk that if you need to go and race in 12 months, because you're going to run out in 18 months, um, like 24 minimum is what I'm going after now.
Nico Vereecke:
Yeah, I think that's fair. I think, I don't know about you Phil, we do, as I said, mostly seed and we are, like the bar is getting high in terms of opportunity cost of deals. And so we're trying to really focus on the ones you were excited about. And once we're excited about
Joakim:
Hmm.
Nico Vereecke:
it, it's less about, you know, the story. Obviously it's a lot about the team, but all else being equal, we want to see some progress and perhaps even subtraction. You know, these are the things we're looking for. And if you can show that early revenue. which an NFT sale during the height of the bull market is not early revenue.
Joakim:
No.
Nico Vereecke:
That's a separate podcast. But if you can show some excitement and people actually, you know, having fun in the game and willing to spend, or, you know, some good, solid early prototypes with some good KPIs around retention, more than willingness to, you know, speculate, that's what we look for.
Joakim:
good.
Philip Collins:
I mean, I think it also depends on the type of business. We're at seed, which is also where we spend a lot of our time. It's B to C, maybe 18 to 24. B to B, sometimes it's like 24 to 30. If it's gonna be a really long sales cycle, it does kind of flex depending on what you're doing and who you're selling to. But a green eco, NFT revenue. If I see five million in NFT revenue, I assume it's zero dollars in revenue. So.
Nico Vereecke:
Yeah, exactly.
Joakim:
Yeah. Yeah.
Nico Vereecke:
Joachim, do you only invest in game studios or do you also do infrastructure and these types of things?
Joakim:
So my focus is kind of B2C. So that covers a lot of consumer facing stuff where it's not necessarily even a game studio, but it could be something that's doing like gaming video related stuff, some gaming betting, like all sorts of facilitation for gaming. where there's a consumer component there. So I'm looking a lot around that kind of stuff, platforms. But yeah, I would say majority of what I spent time on is still game studios.
Nico Vereecke:
As my final question, one that I like to ask my guests, our guests, but I often forget. Can you give us a spicy prediction for the next year in gaming? And you can choose whatever topic you could talk about, the complete collapse of everything web 3. We could also make another prediction. I'll leave it up to you. And if you need a time to think, I'm going to throw the same one at Phil because it's been a while since I heard anything spicy from you. So Phil, go ahead, man. You should have one of these in the back of your mind every time you get on a call with me. So I'm not going to give you so much time to think.
Philip Collins:
Hmm. I just assume I'm immune to this at this point. I've talked to so many spicy takes with you.
Nico Vereecke:
Yeah.
Philip Collins:
You know what? I will go back to when we talked about a few episodes ago because it's been relevant in the Discord recently. I personally don't think we're gonna see a Breakout Web 3 game in the next 24 months.
Nico Vereecke:
Okay.
Joakim:
Spicy.
Nico Vereecke:
It is spicy. Okay, I'm... We should find something to bet over. Something fun to bet over. Because I think it will... Well, it depends a bit on what we call the breakout, right? But, yeah. I guess we can agree on that. Joakim. How about you?
Joakim:
Yeah. Yeah. I feel that Microsoft will take over a bunch of the market share on mobile quite quickly when they enter mobile like big time and hopefully that happens soon. I don't know if it's a spicy take but like I just feel that there's so much momentum at Microsoft that they're gonna do a lot of damage in the near future in gaming.
Nico Vereecke:
How do you see that happen? Could you be a bit more specific in the mechanics of it?
Joakim:
Yeah, like if and when they can open a store on the iPhone and have apps being distributed through a Microsoft sort of owned store. I think that's when you could start seeing them pulling some of their IP out of Google and Apple stores. Like candy crush eventually when the Activision deal goes through Minecraft. whatever like Microsoft owns. There's a lot of interesting things there where I don't think a lot of people appreciate how much damage they could do. They're more aligned with gaming than Apple and Google, than Facebook, than any of the big companies, Amazon. Like Microsoft is the only IP holder really in gaming.
Nico Vereecke:
Interesting that's really good take and I need to think that one through but appreciate it
Philip Collins:
Are you
Nico Vereecke:
good
Philip Collins:
gonna give us one now, Nico?
Nico Vereecke:
I gave
Joakim:
Yeah.
Nico Vereecke:
one last week which was
Philip Collins:
Fair
Nico Vereecke:
extremely...
Philip Collins:
enough.
Nico Vereecke:
What is non-spicy? Teppid? It was like a glass of milk apparently. My
Philip Collins:
Pfft
Nico Vereecke:
prediction.
Joakim:
Okay.
Nico Vereecke:
Very
Joakim:
Okay.
Nico Vereecke:
boring. What is the
Joakim:
Now.
Nico Vereecke:
spicy prediction I can... Well you know Phil, I'm just going to counter your prediction and I already said it. I think this year we're going to see a game, a what? 3 enabled game. That's going to be... Let's see. more than 10 million players.
Joakim:
Hmm.
Nico Vereecke:
I think that I think that's spicy, no?
Philip Collins:
in 2023.
Nico Vereecke:
Yeah, yeah, yeah,
Philip Collins:
Wow.
Joakim:
Wow.
Nico Vereecke:
yeah, yeah,
Joakim:
I'm
Nico Vereecke:
I
Joakim:
looking
Nico Vereecke:
know,
Joakim:
forward.
Nico Vereecke:
yeah.
Philip Collins:
Hey, I think that'd be great. I'm not cheering against web theory. I'm just trying to be extra conservative on my expectations
Nico Vereecke:
Yeah, I get
Philip Collins:
for
Nico Vereecke:
it.
Philip Collins:
timeline, because
Nico Vereecke:
Dude.
Joakim:
Ja.
Philip Collins:
I think last year we got too
Joakim:
Ja.
Philip Collins:
aggressive with our expectations. So
Joakim:
Ja.
Nico Vereecke:
That
Philip Collins:
I'm
Nico Vereecke:
is true.
Philip Collins:
doing bent stick method, going the opposite end.
Nico Vereecke:
Yeah, yeah, yeah. Dude, man, everyone is just like jumps on a hype train and like, um, just, you know, if you spend too much time on Twitter, you start to think like everyone else. So maybe, maybe we should, you know, do that less. It's probably the main takeaway from, from this record, from this recording episode. Don't spend so much time listening to other people and, and, you know, think first principles. Awesome. Good. Phil and Joachim specifically, thank you so much for joining. It was a blast having you guys discussing these things. Yeah, I really enjoy thinking about, you know, early stage investing and helping founders. And I always say this, right? Like I, with every founder I speak, have immense respect for the position they put themselves in by... founding a company because that's pretty much the hardest thing you can do. And you know, I have it easy. So respect if you listen to this and you're building a company. Respect, that's all I can say. Good Joakim, Phil, thank you. Listener, thank you as well. Go follow Joakim on LinkedIn, you're also on Twitter, elitegamedevelopers.com,
Joakim:
Yes,
Nico Vereecke:
newsletter as well.
Joakim:
yeah, on Twitter joachim underscore a, you
Nico Vereecke:
There
Joakim:
can find me there.
Nico Vereecke:
you go. If you want to have more conversations like this, when are we recording this? So Wednesdays and Fridays alternating, 6 PM CET, we're doing down squares. We have a bunch of really smart people who are demonstrating how to use AI and do cool shit with that. We have pitch reviews, and very, very seldomly we have Phil joining in as well, which is when things get real fun. Good. All right, that was it. Thank you for listening, and we look forward to speaking to you in the next episode. Ciao.